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Abstract - Sustainability: shifting emphasis to fostering deployment
The traditional paradigm of an isolated invention environment resulting in protected inventions has already come under pressure by using different variants of open innovation. More or less independent of that development, it also seems prudent to think about how deployment can evolve, especially in sectors where products and services are related to "essential needs" like health (including food safety, clean water etc), access to education and access to clean energy, or in other words, sectors that constitute realisation of social values and therefore stimulate a sustainable world.
Without more deployment of technology (currently protected by patents), society is not benefiting optimally from innovation efforts. This is true in general, but especially with regards to developing countries and the aforementioned sectors this is an undesirable situation. The playing field is vastly multi-dimensional and interrelated, ranging from IP-aspects to investor interests; various stakeholders hold different interests.
A core aspect of the analysis on how to optimise deployment is the system of IPR (intellectual property rights). To protect social values better, a radical change in the IPR-system is not necessary. Voluntary mechanisms to stimulate wide deployment exist, but need to be utilised more actively. Examples include conditional licensing, no-use clauses, valuing (shared) learning-by-doing to speed up the learning curve, no or partial patenting and valuing reputation as competitive advantage. In general, producers should realise that they have more options at their disposal than a mere focus on (short term) payback of investments in innovation. Such a change in mindset could lead to an increased atmosphere of "open deployment" as a logical evolutionary step after "open innovation". This is particularly important regarding deployment of technologies that serve essential needs as the basis for a sustainable economy.
This paper aims to provide a basis for an open discussion on this topic to contribute to this change in mindset. At this stage it is not intended to "make a coherent point", but rather to provoke discussion and stimulate thinking about new methods that address the concerns of the 21st century.
This discussion paper was born out of the observation of the following issue: technologies are not always used as intensively as they could, and especially when basic human needs (education, health, energy, liveable environment) are concerned this is an undesirable situation. If we for a moment agree to this contention, why is this situation occurring? Simply formulated but less easily answered, amongst others, because technologies are being developed in a complex playing field. The core question is this: which forces influence the extent of deployment of innovations (invention) and how can the degree of deployment of a given technology be increased towards the socially optimal level? A first, and not necessarily exhaustive, analysis leads to eight interrelated factors that influence the step from invention to deployment. An additional complication is introduced as their relevance and the way they manifest themselves varies across sectors. For the purpose of this paper, we are talking primarily about sectors that deal with goods with a public character, that are beneficial to substantial 21st century values: health (including food safety and clean water), access to education, a clean environment and access to clean energy.
The identified factors that influence deployment are:
- IP-protection: is supposed to stimulate inventions. Does it indeed but more importantly, does it stimulate deployment or block it?
- Resources in the supply chain: are these used efficiently and effectively?
- The role of the market for public goods: what responsibilities are shared, what is the role of the government, are market forces a suitable mechanism to regulate public goods?
- Science & technology: relying on laboratory environments or practical circumstances?
- Legislation other than IPR: do existing roles, inadvertently or not, block the deployment of new inventions?
- Pricing strategies: how are products and services introduced in the market, does pricing take the purchasing power of the target groups into account?
- Investors: are their decisions based on short or on longer term incentives, which demands do they put on companies, e.g., regarding IP?
- Strategic decisions: concealing innovations and shielding technologies may be regarded as functional to competitive advantage.
These influences of the individual factors cannot be analysed in isolation, they overlap and are strongly interrelated. The question may also lead to different answers when we would focus on "non-essential" consumer goods. This paper does not intend to exhaustively discuss all elements, nor does this list imply that there are no other influencing factors.
There is another angle for looking at this complex issue, which may provide a more structured approach in arriving at solutions. This is the stakeholder approach. For now, we have identified 5 stakeholders, with different interests:
- National governments: supply public goods and goods that benefit aforementioned social values, but also aim to protect the competitiveness of their country"s economy
- Large companies: need to earn back their innovation investments, need to compete with other innovations on a strategic level, and are influenced by shareholders.
- Entrepreneurs: also look at returns but a growing segment is also looking at the positive societal impact and how to maximise that. This is the increasingly recognised group of social and sustainable entrepreneurs.
- Society: "we the people", in both our roles: citizens (mostly interested in availability and distribution of public goods) and consumers (mostly interested in access to private goods with suitable quality and affordable prices).
- Investors in companies: in general will require a return on their investment, with clear distinctions in demand for high returns within a short period to modest, or broader social returns that possibly materialise only after a longer period.
If we were to identify paths for change, it may help to map the characteristics of these pathways on this stakeholder overview in order to identify leverage points (supporters) and expected pockets of resistance. This will help to determine actions to turn a possible development path into reality. A first attempt will be made towards the end of this paper.
This topic is very complex and multi-dimensional. This discussion paper will take the first factor as mentioned above as a main starting point (the role of IPRs in deployment), but will necessarily touch upon all other factors as well. This paper does not provide the final answer on dealing with IPR, nor does it propose a clear and coherent stance in this issue. Rather it is intended to serve as a starting point for further discussion, research, and possibly experiments to test or verify assumptions. Collaborations between various stakeholders to help to realise these intentions to become reality are therefore encouraged.
Deployment of technology, lead-up to the role of IPRs
The questions that were raised in the introduction are especially relevant in the context of sustainability (including health and social-economic opportunities) and/or technology transfers to communities that are less well off, like developing countries. Many technologies that are currently available would already be of extreme use there (renewable technologies, affordable ICT, medicines, water purification). However, while technology transfer is generally regarded as a strong potential vehicle for economic growth in developing countries, the degree of transfer and its effects appears to be limited at the moment.
As enforced by the TRIPS-agreement (Trade Related aspects of Intellectual Property Rights), developing countries must have a certain level of IPR (Intellectual Property Right)-protection in place to avoid import sanctions. This, in theory, assures their participation in the fight against piracy and illegal copying of technology even though it has not been proven that stricter IP-regimes actually lead to more technology transfer (Maskus, 2004). If, additionally and for any reason, developing countries are not (yet) able to assure this level of protection, they stay bereft of many new inventions. This includes ones which, when implemented by those countries, would benefit us as well, like climate friendly technologies or medicines in case of outbreaks of highly contagious diseases. This is a lose-lose-lose situation and therefore a very valid argument why governments could decide to intervene, and not solely trust on "market forces". This concern for securing the provision of goods that protect basic social values in practice will have to be balanced with the fear of governments that lack of enforcement of IPRs endangers the competitive position of a country.
Another likely, and in a sense related reason why technologies are not more often transferred to communities that need them is the price of this technology as offered in the recipient countries. Companies that have invented and developed new products need to earn back their investment. While in case of medicines some companies may indeed adjust their price level to the purchasing power in the recipient countries (Garnier, 2008), this is also putting pressure on their financial bottom line. Without any additional measures (see later in the article for examples), this may not happen too often. But many of such communities, e.g., developing countries simply cannot afford new technologies, and no one else seems to be picking up the tab. A host of multi-lateral funds, the CDM for climate change mitigation and several other channels are still not sufficient, although lately efforts seem to be increasing (e.g., GEEREF). Can such efforts be fostered, increased, and how could this materialise? It is clear that IPRs play a central role in this issue, although obviously not the only one, as discussed at the start of this article. National and international policies and circumstances as well as various stakeholder interests may block adoption of new technologies as well. Nevertheless, a core question in this article will be: if we look at the deployment phase of the innovation cycle, is the role of IPRs a positive one or not, and what options are available - within the current IPR regime or as adjustments - so as to ensure benefits for inventors, companies, and society as a whole?
The case for IPRs and recent responses
First, the issue must be broken down in elements. The introduction of new inventions (for now limited to technologies), is divided into several phases: inventions as acknowledged by law (with the IPR-system as assumed stimulant), dissemination of information on these inventions (the patent application containing information with which a "skilled craftsman" should be able to build it (WIPO), diffusion of the applications and actual deployment. The challenge that is addressed in this article mainly lies in the last two phases.
Why do patents exist, and are the reasons valid?
In general, intellectual property rights like patents exist to offer inventors the recognition for their creativity, which should encourage innovation (WIPO, no year). One could indeed hypothesise that without any form of protection of intellectual property, inventors would be less enticed to spend their time and energy on inventing anyway. In more formal scholarly terms, without intellectual property protection, firms are in a deadlock when determining to use inventions by others, which would lead to prohibitive transaction costs. This requires some explanation.
New ideas are in a sense a public good and are therefore non-exhaustible non-excludable (Burk and McDonald, 2007). Because of the latter characteristic, without intellectual property rights, the optimal strategy for any firm would be to free ride, wait until others generate ideas, take them and then develop these further themselves. If everyone would however follow this strategy, no one will spend resources on generating new ideas. This would stifle innovation.
In current reality it is assumed that a mechanism must exist by means of which potential buyers can determine whether it is economically justified to indeed purchase an invention (or idea), or develop these themselves. Following conventional wisdom they can only decide to do so if they have sufficient information on the invention. In this line of reasoning, from the inventor"s part, by disclosing the information, they face the risk of free-riding by the potential buyer. This situation results in a deadlock: the inventor will not easily provide the information and the buyer will not want to acquire it if he cannot assess what it is worth. This in theory leads to prohibitive transaction costs (Burk and McDonald, 2007) and will thus block any invention from being used if the inventor has no capacity to turn the invention into actual products.
This is partly the case in favour of the current Intellectual Property Rights system. Patent applications require the publication of the invention. This means that potential buyers can assess whether they want to attempt to acquire a license, or are better off developing an alternative themselves. At the same time, the inventor by sharing the information enables the potential buyers to make this assessment. This system is designed to prevent the initial deadlock and thus in theory bring down the prohibitive transaction costs to manageable levels, i.e., by creating a regulated market for information on inventions, which reduces the risk level for both parties. This reduced risk level combined with an assessment of the value of the invention for the buyer is then incorporated in the reduction of transaction prices to a non-prohibitive level. On the other hand, if the main incentive of the patent owner is to get a monopoly profit, the maximal benefit to society will not be achieved (Dixon and Greenbalgh, 2002).
By and large this system implies that the powerful market parties (knowledge, patent experience, market access) have an almost natural advantage over the ones that have fewer financial resources. Such benefits for the larger more powerful market parties (both sellers and buyers) could be socially acceptable if we talk about non-essential consumption products like expensive cars: sellers can use their powerful positions to develop products and sell to customers who are willing to pay high premiums. This picture changes if market power dominance refers to necessities or basic subsistence related products and services that would make the lives of millions just a bit more bearable. In that case, benefits flowing to only the powerful parties seems undesirable. To have access to their life"s essentials less powerful parties and governments are then dependent on the "mercy" of the ones with the resources (e.g., to sell products an appropriate price level) which may or may not happen. This situation is exacerbated by the (perceived) instability of capital markets in some developing countries. This makes investments more risky and therefore more expensive, hence reducing the opportunities for less powerful market parties to get into the game.
Developments that move away from IP-focus
The development of new technologies and products depends strongly on the capacities of the inventors to develop the ideas into products, but also of the goals of the inventors. Ideally, seeing their inventions being put to use would be the real recognition. This is definitely not always the motive for research, as will be discussed in the next section. If we however look at a phenomenon like the open source movement, it is the actual free sharing of information and (software) inventions and improvements that forms the whole basis of that industry and does not seem to suffer from the transaction cost-deadlock. Mere recognition by their peers of the value of their contribution, the value of (as opposed to disruptive) incremental improvements as well as being able to influence the quality of a product are the actual drivers here, not a monetary compensation for that contribution. Although an increasing number of OS-developers seem to be paid, in some shape or fashion, the core idea seems to hold. The main business model for OS-companies lies in the services (installation, help-desk, manuals, regular updates, integration in regular systems-architecture, security etc). Obviously, a quickly evolving product like a software programme is very suitable for continuous and small improvements and lends itself for value-adding services, while this may be less valid for other sectors and products.
Secondly, we see an increasing number of mechanisms that are used in invention phases nowadays that seem to be less defensive in protecting the isolated source of an invention but instead recognise the value of cooperation in this phase. Such mechanisms include (user) co-creation, crowd sourcing and acknowledging possibilities for open innovation in general (Chesbrough, 2003). This has many potential advantages (most notably product quality and addressing actual demand), but does require a more open mindset towards "property". This mindset can in extreme cases be labelled as "nothing is invented here syndrome" (Hargadon and Sutton, 2000) as a source of pride, not shame. Companies in such an environment need to identify and manage the value that is created in the co-creation process, capture that value and translate it into products and services that provide their specific competitive advantage. Such capacities, i.e., using other factors than just invention and protection, will move a company right to the core of the 21st century and customers will notice this. This core is not just about producing, not even about learning, it is about the ability to effectively incorporate knowledge that is in principle available to anyone. In that sense it will help to look at the discussion on how companies can make money while their primary product is a commodity, i.e., potentially free of charge (Kelly, 2008). That discussion can be extended to the situation where many companies delve into the same knowledge pool: the outcomes may be different, depending on the ability to incorporate special, or even non-copyable elements, including brand name and reputation!
The IP-system has already started to work against even the largest companies, due to the emergence of "patent sharks" (Henkel and Reitzig, 2008). These exist primarily to identify, but and then exploit patents, many of which are "hidden". Once a company inadvertently infringes on such patents, the "sharks" are quick to rise to the surface and attack, i.e. sue. While their case may not even be that strong, until recently they were usually awarded a "preliminary injunction", preventing the company they were suing from entering the market. In many fast-paced industries, such delays are lethal and companies quickly settle. Later sections of this paper will address how this danger can be circumvented.
Innovation cycle phases
As discussed above, this paper attempts to identify directions for solutions that allow "less resource-rich" parties to be included in the game, and/or allow for (wider) deployment of products and services that protect basic social values. These directions include mechanisms that would reduce the price level of the final products while not endangering the economic position of bona fide parties that sell such products. Before we turn to such potential solutions, first some brief remarks about the various phases in the innovation cycle.
IPRs protect inventors, and following the arguments as outlined above enable inventions (and their expected revenues) to be negotiated about. Without protection, but apparently still allowing for the situation that inventions become public somehow, the assumed "problem" is spill over to (local) companies who can copy the technology (Wakasugi and Ito, 2007) and start selling it at a lower price. This would endanger the original inventing company, or in case of developing countries, their local subsidiary (Cave, Van Overwalle & Nooteboom, 2005).
This poses a challenging question to the proprietary companies: if they offer a product on a market that can easily be copied and sold at a lower price, did the company then offer a good value proposition in the first place? Did it take the context sufficiently into account? Part of this context is the purchasing power of local consumers, as well as the quality that suffices. If both are overestimated, or even ignored, then the price/product ratio does not suit that market. While it is fair that companies earn back their costs for developing new products, they also should take care to offer a combination of functionality and price that does correspond with the local market needs and consumer possibilities. To achieve this they could for example decide to use more local resources in development and production and complement these with the "abracadabra" element that remains secret.
Obviously, the situation where a premium product is fully copied without permission and sold at a much lower prices is not acceptable. But apart from that case, any other situation where companies do not approach a particular market appropriately creation of very similar products that do take the local market needs into account better is a logical response. Instead of spending energy on protection, doing more market research seems a justifiable re-allocation of resources. Interestingly, this contradicts one of the findings of Garnier (2008) for pharmaceutical companies. He asserts that their cost basis is dominated too much by sales and marketing instead of the core (R&D). He does however seem to refer more to the expensive advertising campaigns in developed countries than targeted market research in developing or emerging economies. "Marketing" in these countries, especially for the bottom segments, may have to focus more on basic information provisioning, thus lowering the overhead costs.
Garnier (2008) also urges pharmaceutical companies to re-think their R&D-efforts, but focuses on the organisation and incentives structures, because of an upcoming wave of patent expirations in the sector and an observed decline of the period that premium prices can be asked. This actually seems to be the result of regulatory changes that demand a shorter period for generic derivate medicines ("generics") to be allowed to become available. Instead of solely thinking in terms of productivity and re-organisation, the situation could also be seen as opportunity, an invitation actually, to really rethink the paradigm of invention > patenting > reap benefits > redo.
This may also relate to another increasingly interesting topic, that of incentive schemes. In open source software-communities it is widely accepted that without diffusion of inventions and the recognition of individual contributions, innovations are useless. Rewards within groups include non-monetary aspects and especially status. Money is still being made, but not necessarily on the base products that involved many contributors that would be difficult to reward following a fair financial system. The business model for the commercial entities in this environment therefore lies in the services around the product. This goes to prove that lower or even no formal protection can also stimulate creativity by thinking of new ways to make money, while stimulating wider use of the product. This raises the almost rhetorical question: could this be applicable in other sectors as well? And linked to this question: would an infrastructure for services be less complicated than for products?
By introducing a high barrier for others to use the technology, it is easy to see how overzealous protection can lead to crowding out of local competitors. Especially in the domains of sustainability, development cooperation but also health care, this raises serious doubts about the intended effects of technology transfer: Shouldn"t the main aim be breadth of use that is socially optimal (at least, for these technologies)? Maybe the added value for the original inventor (and when applicable, his or her employer) lies not so much in protecting and selectively selling the products but in providing training or experience in bringing the product to the market. High-quality training, or targeted information (possibly even paid by semi-government sources) are for example much less easy to copy. This may for some people also be a more pleasant way to transfer one"s knowledge than a one-time invention. This argument is certainly applicable to health and energy sectors.
Several publications have to an extent demonstrated that a stricter IPR regime in a host (i.e., recipient) country has a positive effect within MNCs (multinational companies) on the intra-firm technology transfer from the parent firm to the subsidiaries (Wakasugi and Ito, 2007). This supposedly also happens when parent and subsidiary are located in the "north" and "south" respectively (Yang and Markus, 2001). However, while such findings indicate that technologies may become available within the multinational firms, in locations in other countries, this still says very little about whether the technologies are actually used, implemented and deployed more than would have been the case without the stricter enforcement. Wakasugi and Ito (2007) acknowledge as much, but claim that it is too difficult to investigate the influence of stricter IPRs on actual deployment, and therefore only focus on the intra-firm transfer.
There is more: many examples exist where people do not even dare to develop new technologies, because they know the area is rife with patents (patent "thicket"), many of which are not even used but just kept from the market on purpose (Cave, Van Overwalle & Nooteboom, 2005). This phenomenon basically prevents a good idea from being used. What value is innovation (and patents) for society as a whole then? It is even a built-in attitude in the whole patent system: "the patentee [...] a statutory right tot prevent others from commercially exploiting it" (WIPO, no year); even if those "others" would be much better equipped and could make sure that the invention is actually used. This in practice leads to the situation where especially large companies have many patents lying on the shelf, gathering dust, for not much more reason than preventing others from using that invention. This in a sense is contrart to competition laws which more explicitly than IPR laws strive for optimising consumer welfare (Dixon and Greenbakgh, 2002). Together with non-published inventions (i.e., trade secrets), such "pre-emptive patenting" means society is robbed of many potentially good products, which is undesirable in the sectors that this article focuses on. This issue is actually a main theme in this context: reducing pre-emptive patenting in the field of innovations for products with a public character. It is therefore touched upon several times in the remainder of this article.
Branstetter et al (2005) are in favour of stricter IPR regimes since their research shows that in case of stricter IPR regimes in host countries, royalty payments to the parent company increase, indicating a higher value of the technology transfer. It however remains to be seen whether this also means that actual rate of deployment increases. The relation between the size of the royalty payments and the degree of deployment depends on what type of license is agreed upon (fixed amount, volume based, sales percentage, fixed percentage of revenues, etc), so as a general statement a higher royalty payment of local subsidiaries to the parent companies is not necessarily an absolute proof for higher deployment.
In a system that is only focused on protection (instead of actual ROI), the most likely move of the price of technology is upwards, especially on the short term, if only because protection blocks competition. This hampers adoption and deployment or poses customers with much higher costs than is socially acceptable. An area where this has already occurred is health care, e.g., the medicines that have been developed to battle avian flu outbreaks (Klein, 2007). Companies also rob themselves of the chance to sell and implement more, therefore learn more which can feed into their organisational processes which can speed up their learning curve and would further enhance their competitive position in all the markets they operate in. This, in combination with having measures in place to prevent parallel imports, could justify a lower price in countries that cannot afford the high initial prices. Companies unfortunately rarely take this approach. Whereas a concept like open innovation is by now increasingly used, the time may be ripe for "open deployment" as well, to stand a higher chance of inventions being scaled up quicker and better (Oey, H, 2006). The solutions-section will discuss strategies that may achieve this in more depth.
All in all, it seems to be worth questioning whether too much focus on protection and patenting is worth the trouble. While simply copying and selling products is not allowed, reverse engineering of products that use new technologies is permitted (Burk, 2007). Especially in the case of inventions that are relatively simple, companies can perhaps consider to spend their resources better by working on improving products by deploying them and learning from that experience to gain their competitive advantage. Especially if they would engage in "purposeful learning" (Johansen, 2006) they may achieve better results. But learning in the deployment phase is only possible if deployment happens in the first place.
Avenues for solutions: existing possibilities and more radical options
One way or the other, more attention is required for diffusion and especially deployment. Use that is socially optimal should mean highest volume, not highest price. Part of the solution may be to realise that inventing is a different cup of tea than deploying, so if companies combine this, it is likely that inefficiencies take place, even further increasing prices. Specialisation is actually a central theme in the theory of the existence of firms in the first place (Burk and McDonald, 2007). In practice, larger companies acquire small companies that have made a ground breaking invention all the time. But they do not always bring these inventions to the market. Similar to pre-emptive patenting, they simply keep their competitors from doing so. Society suffers in the process. [Some examples would be good to include here] The opposite also happens, like with the aforementioned patent sharks who thrive on products actually being brought to the market that contain (hidden( infringed) patents, which enable them to sue, as a primary and sometimes only source of income (Henkel and Reitzig, 2008).
There are however several possibilities, even within the current framework, to stimulate dissemination and deployment more than currently is the case. Much depends on the vision of the source of the innovator in that case. Governments, if reluctant or unable to regulate towards more deployment, on their part can decide to stimulate a mindset in which such current possibilities are chosen more often. The possible role of governments is discussed in the final section.
The following sub-sections briefly describe some of the possible solution directions. The first set is composed of relatively simple alternatives that do not require a system change, but rather a specific assumption on motives and mindset of the originator of the invention. The final two suggestions need much further elaboration and analysis.
Possibilities within current regimes
The following avenues for solutions do contain similar elements. The actual solution may therefore a combination of more than one of the options that is described below.
Patent holder privilege
An option which does not seem to be realised by many is the privilege that a patent holder has in deciding how to use the patent. For example they can decide to license to other companies only if they are serious about deployment, or if they are non-commercial, or if they are willing to share their learning experiences in a common learning pool, etc. In this way they can stimulate companies with "good intentions" to acquire licenses. Kim and Mauborgne (2000) assert that producers of products with strong pattern protection can set higher prices when determining their pricing strategy. But it is important to realise that they do not have to. They have the freedom to set more affordable prices, and if they have optimised their innovation processes and care about wide use of their products, they may decide to do so.
A famous example of an organisation that has started a "movement" based on such "conditional licenses" is the Creative Commons organization, that asserts that instead of "All rights reserved" a better option is "all rights reversed" or more formally known as "Some rights reserved".
In the area of copyrights, they have defined standardised options for authors to define their level of protection. Defining such standardised options of conditional licenses may facilitate the use of the mechanism in other areas as well. This seems to be a societal development and one that is less or not governed by legal processes.
A very recent example of this type of solution being used by a high-profile set of organisations, is the Eco-Patent Commons, initiated by the World Business Council for Sustainable Development (WBCSD, 2008), for now directed at climate friendly and resource use efficiency enhancing inventions. One of the core premises, very much in line with what is stated in this article, is "...leading businesses may hold some patents that provide environmental benefit and do not represent an essential source of business advantage for them. Though these patents may provide nominal license or exclusivity potential for companies, they may provide greater value in a public commons". In stating so, it recognises that IPR-regimes are no longer black & white affairs, and a company does not need to give up its crown jewels, while still being able to contribute to the public good. It also encourages competition amongst companies that can now compete based on their deployment capabilities instead of research, which often requires much deeper pockets. In the ideal situation, it may stimulate and facilitate co-creation processes, especially for early phases of product development. As stated earlier, the benefits that companies derive from such processes depend on their ability to identify and capture value from these processes.
A specific form of the previous option is a tender. If inventors care about actual wide deployment and less about their own financial benefits they could organise a tender for bidders, and sell to the bidder who has the best intentions with the invention. In that way, companies have to take some trouble to explain how they intend to use the invention. This may stimulate two things: companies that are not really interested (but wanted to keep the invention on the shelf) may be "crowded out", and it is not just the money that determines who gets to deploy: the inventor can decide to sell to a bidder who offers less money but a better and more "enlightened" strategy for deployment. This effect is possible in current licensing, but is even more likely to manifest itself if it is stimulated in this way. This will be enhanced if tenders are public. This will deter companies that otherwise could be tempted to present a more positive story than they actually intend to execute. Scrutiny by any stakeholder in the public sphere, including NGOs, is not something that companies nowadays particularly like. The public nature of the tender could be somewhat reduced to allow companies the opportunity to implement the plan.
This situation could enable non-profit organisations to play a bigger role. For one, their more traditional role to manage public scrutiny processes. But they now also have a more active role to play, namely being among the bidders in a tender process. With intention and quality of plans trumping the prices that can be paid, the conditions would be present for them to become actively involved. The more entrepreneurial ones can then show that a non-profit approach to technology deployment has a positive impact on its distribution. The key to success for this scenario is the requirement of the inventor to recover at least basic costs (how high are these), but also the (in) ability to function of NGOs to act as a market player towards the final consumers. That last argument could keep them from detecting relevant patents that are disclosed in patent databases. The possibility to play a more active role may actually inspire a next generation of NGOs to develop and claim their place. They would need to avoid the situation where they are accused of unfair competition, e.g., because their whole development and deployment process is subsidised.
Inventors and even organisations can decide not to patent an invention. Instead they can spend time, energy and money in turning them into marketable products, alone or in cooperation with others. By shifting attention to quick deployment they can beat possible competitors. In case they keep their invention a secret, they would run the risk of someone else receiving a patent and then having to pay them (Burk and McDonald, 2007). However, one of the conditions of getting a patent is that the invention has to be new. If the original inventor makes sure that a sufficient number of people have the relevant information (i.e., it is "public"), this would successfully block any right to patent the invention by other people and thus completely cancel out the risk of having to pay royalties. This is a clear difference with companies who use "trade secrets", because in their case that information is not public and thus cannot block patent applications by others. Not patenting can result in a shift towards deployment: more information is being disseminated and there are less hurdles for arbitrary organisations to use the invention. Their capacity to do so will determine their competitive position. Companies could in this way still have aspects that they keep secret and provide them with advantage for some time.
Another reason to use restraint with patenting has emerged based on the discussion on patent sharks. Henkel and Reitzig (2008) suggest five ways to prevent or at least mitigate that risk, many of which include moving away from building large patent portfolios, more focus on cooperation within and outside companies, and use patenting only for significant inventions, which would enable patent offices to spend more time on valuable patents, thereby raising the bar and preventing patent thickets. Some favour patent offices to engage in active dialogue to help draw out such anticompetitive actions (Dixon and Greenbalgh, 2002) vut this requires and open mind-set on all sides. The main gist of the recommendations is that everyone can contribute to and benefit from the situation where creativity is put into actual applications, and not in the best way to squeeze money out of companies. Such an atmosphere can hardly be enforced, so companies have top take the lead.
Patent in developed countries only
A specific mechanism to stimulate diffusion to developing countries is to not apply for a patent there. This means that companies in those countries are free to use it, as long as they don"t export the products to countries were the patent is filed, so as not to hurt competitiveness in those markets. Organisations that sell the products could shift to providing product-related services in the developing countries, including training to stimulate the deployment and correct use of the products. Maskus et al (2004), although generally in favour of stricter regimes, acknowledge that patents can block technology transfers under certain circumstances, which is facilitated by globalised IPRs. By "de-globalising" IPRs for certain sectors this effect may be mitigated. An interesting option to investigate that seems to strike a balance, is to initiate a BoP-patent (Bottom of the Pyramid), that could be applicable to certain markets, balancing the purchasing power and danger of massive infringement. Another option is to explcitly use differentiated license fees so goods can be brought on the market more cheaply in developing countries; this would need to go hand in hand with mechanisms to avoid parallel imports to developed countries (Dixon and Greenbalgh, 2002).
Another way to speed up the process of diffusion is to auction off unused IPRs. There have been examples of such auctions, but mainly related to very old patents. Depending on how such an auction is designed (purely financial or not), this could again provide room for organisations that are more concerned with the general benefits to society like non-profit organisations. As a proxy, patent agencies can stimulate such developments by publishing expiration dates more pro-actively. This option is quite similar to the public tender, but likely requires less disclosure of plans by the purchasers.
There is a whole other road when looking at ways to stimulate deployment, which really has much to do with how companies look at how their intellectual property can create value for them. Companies may decide that lead time, working on design and learning capability and actually gaining experience with the product once used provide signifcant advantages (Dixon and Greenbalgh, 2002). they may even decide that sharing these experiences with others who develop and deploy the same type of product, is more beneficial to them than securing high profits per product (but probably at low volumes) for the short term. They could develop a shared learning pool. If they actually did get a patent, they could make this one of the conditions in giving out licenses: all licensees benefit from sharing their experiences. While actual experience is a very valuable competitive advantage, the ability to incorporate these experiences is even more so, and this will not be negatively affected by being part of such a group. They speed up their specific, and possibly their general learning curves. While in such environments crowding in can be stimulated, the barriers should not be set too high, to prevent the opposite effect. That effect would be crowding out. This could lead to an unintended monopoly by the group who can then split the profits (i.e., market) amongst themselves.
"Learning by doing" and incremental improvements are acknowledged by Oosterhuis and Faber (2007), in general as very good ways to bring down the prices of technologies. Their example refers to environmental technologies, so is specifically relevant if we are talking about sustainability, but their findings are likely to hold for other types of technologies as well. This is even more valid if the technologies have a potential to be deployed on a large scale.
This principle could by the way also be applied in the innovation phase itself, if the organisation makes a point of accepting or maybe even institutionalising failures as a way to learn (more) and thus arrive at even better products than would have been possible without failures along the way (Thomke, 2001). Especially for disruptive innovations, it seems essential to "plan to learn, not plan to execute" (Christensen, 2006). The mindset that is required for such an innovation philosophy has much in common with the mindset that seems to be required to share a common learning pool in the deployment phase. This may side-step one of the blocking issues that was identified in the research on use of open innovation principles (although here we are actually talking about open deployment) in the Dutch SME sector, namely the dominance of organisational and cultural differences in cooperation between companies (De Jong, 2006). The main uncertainty to tackle seems to be the competition argument: if companies share the same learning pool how can they achieve competitive advantage? Especially if they are direct competitors this is a relevant question.
To answer that question, it is useful to make a distinction that has been made before in this article, namely actual company-specific aspects like marketing, specific technology etc, and the abilities to use the same information and experience in a better, more diverse and more effective way than competitors, i.e., the ability to learn and incorporate. While exact predictions are hard it is rather easy to imagine that companies that are better at internalising the learning effects, i.e., have a better developed ability to learn, achieve competitive advantage. Secondly, the aforementioned capacity to include non-copyable (mostly intangible) elements and leveraging the brand name will become more decisive in shaping the competitive landscape. Such abilities are actually an indicator of overall quality of management. In the mean time, society benefits compared to the situation where companies act in isolation, and may not even achieve sufficient economies of scale to get an innovation off the ground. Economies of scale as a mechanism is another channel that has a positive influence on price reduction.
Reputation as competitive advantage
Another incentive for organisations to pay more attention to diffusion outside their own companies and actual deployment is the reputation aspect. This is especially valid related to developing countries or communities at home that do not have the resources. Companies can actually benefit on the whole if they are known for a conscious, inside-out (i.e., based on true beliefs) modern approach to these matters. Sustainable development and inclusion of developing countries in a pathway to a more developed but cleaner future are hot topics. A company that can demonstrate that it is contributing to both may find that it has created a better overall competitive position towards customers who are getting increasingly conscious about such matters. They also increasingly recognise that other companies do not address these concerns, or only by means of a re-active CSR strategy. Additionally, it is not just reputation that benefits. As Ross Kanter (1999) asserts, companies can gain very valuable new insights by not just focusing on the short term profit but approaching cooperation with charitable organisations or community projects as a testing ground (case Bell Atlantic - Union City) that justifies sub-commercial prices.
As a final option to be discussed here, it is relevant to briefly mention the new initiative by the European Patent Office (EPO). They started a Green IP project, which aims to "...pay a proportion of patent-derived income into a trust fund for supporting the development of patent-protected green technologies" (Brimelow, 2008). While this initiative does not directly ensure a wider deployment of "green technologies", it does seem to provide an arrangement, where research costs for such technologies are carried by the EPO or at least a publicly available fund. This means that the costs to turn these new inventions into products are lower and could lead to more socially acceptable prices, thereby lowering the barrier for adoption and deployment. Whether this chain of effects materialises is something that the (near) future will shed more light on. At least it shows that the epi-centre of the IP-interests is taking on the challenge of thinking about how the traditional system can evolve into one that better addresses the needs and characteristics of the 21st century.
Summary of likely effects of the options
As a first attempt to structure the analysis of this highly complex field, all options that are described in this section will be briefly assessed on their acceptability/desirability for the various stakeholders.
|Patent holder privilege (free)||Wide deployment, possible concern over competitiveness||Possibility for non-core inventions, otherwise unlikely because of sunk costs||Possibility to acquire inventions for free||More inventions may reach market place, quality uncertain||At first sight not interesting.|
|Public tender||Market assumes part of role of government: does not need to regulate||Can be outbid based on quality instead of financial resources||More possibilities for NGOs, and entrepreneurs with eye for impact||Likely benefits (quality of deployment trumping profits), but companies must be self-sustaining||Interesting for ‘patient capitalists’|
|Not patenting||Opportunity to develop other capabilities, saves legal costs||May save time and money, but effect uncertain||Less limitations, likelihood of more affordable products available||Depends on business models (revenue structure)|
|No patenting in DCs||Requires extra monitoring, also on imports||Differentiated strategies: complex but increasingly required||Uncertain||Situation in DCs may improve, leading to better distribution of positive effects, possibly leading to less conflicts||Return-opportunities from DCs depends on intelligence of business model|
|Auctions||Possibility to show good intentions||Possibility for ‘rogue; chances in old inventions||Likely to be old patents so large benefit not obvious||Mostly not interesting, save rare exceptions|
|Develop ability to learn, learn together||Could be ideal for governments||Stimulates more modern ways of development, but outcomes depend on own capacities: will lead to winners and losers||Smaller organisations may adapt quicker, but still need to have the right capacities to become a winner||Could result in much more modern suppliers, leading to better overall quality||Outcome uncertain, depend whether they pick a winner or loser. These abilities are good management quality indicators|
|Reputation||Less need for regulation||Effect depends on type of CSR-strategy (from re-active to pro-active).||Would have the advantage because of their starting point, but need to keep promises||Need to pay more attention who they but from.||Will need to combine investment decisions with ‘softer’ criteria|
|Cross finance||Could lead to some regulation to prevent abuse||Somewhat complicated||Could benefit from the shared patent-pool||Could lead to lower costs depending on design of the mechanism||More difficult to pick the winners|
As this first assessment shows, options to modernise the current playing field seem to hold promises, but the effects cannot easily be formulated in terms of "good" and "bad". This assessment could however provide input for discussions with stakeholders on how the positive scenarios can be achieved.
Outside current frameworks
Additionally, two ideas will be proposed that fall outside the scope of the current IP-regime. These ideas would need to be developed further and may not be practical to implement. Even in that case, they may provide elements that can be used in optimising the actual solution directions.
An Idea exchange: selling the proposed effect
A possible avenue could be that organisations can specialise in generating ideas and turn this into their reason of existence, providing other organisations with the opportunity to specialise in production and deployment. The idea-generators can then earn their income by selling off the ideas (as opposed to concrete inventions) and let the value be determined by the proposed effects for the companies that acquire the ideas. Transactions can take many forms, like a low initial fee and % of the sales of the eventual products or a % of the attributable decrease in costs. To ensure a sufficient protection for the idea generators, they may disclose only a small part (e.g., the basic idea and the proposed effects) and provide the rest upon acquisition. Such an IEX (Idea EXchange) could be set-up or experimented with. Companies may in this time of open innovation strategies value relations which such idea generators and may very well be willing to compensate them financially or otherwise for their effort. Of course this could also be arranged outside of an overall market setting like an IEX.
Intellectual Transfer Rights
Finally a completely novel mechanism to stimulate deployment is introduced. It builds upon the Idea exchange option and is based on the contention that we are dealing with two markets: ideas and inventions being adopted for deployment, and "deployment actors" who bring products to the end-user markets. These two market places have some distinctive features which could support the case for specialisation. In theory this could bring down overall costs hence stimulating more resource efficient and more widespread deployment. The proposal is still very conceptual at this stage.
More or less similar to the current licensing system, but focusing more on the importance of deployment, one could think of a system in which companies have to acquire ITRs (Intellectual Transfer Rights) to disseminate technologies. If companies buy off patents or acquire licenses from inventors, they need to buy the IPRs and then convert them to ITRs. Only companies with ITRs can disseminate and deploy inventions. ITRs are aimed at bringing down the overall costs, and stimulate a more effect-directed mindset by deployment companies instead of one that is focused on profit-maximisation alone. This mechanism results in two markets: one market for IPRs between inventors and deployers, and one for ITRs (costs of which can be incorporated in the final products) between deployers and the end market. These are different markets, and because of the specialised nature, it is conceivable that firms will specialise in one of the two. Economically, this will lead to more efficiency which most likely means that both innovation and diffusion are positively affected in terms of costs. Large companies may still do both, but then face competition in both areas. When IPRs are transferred into ITRs other deployment companies would need a chance to do the same. A period would need to be set within which an IPR needs to be converted into an IPR, otherwise the IPR would expire. If this period is sufficiently short, pre-emptive patenting is likely to be severely reduced. Large companies with IPRs are also encouraged in this way to assess their own use of the IPR more quickly. If they conclude that they cannot easily bring the inventions to the market, they can decide to sell them, instead of shelving them, to recover at least some of the costs. They may still decide not to sell them but then their right of use also dissolves. This process would need to be monitored by a public authority, e.g. patent offices that already have access to the IPR-related information.
Since the purpose of ITRs is dissemination that is most optimal for society -in principle with a widest possible use- and the aim is not to get the highest possible profit, they ideally are volume based. So, the more actual products are sold, the higher the income for the disseminating companies: this stimulates wide deployment.Deployers will estimate how popular a new technology will become, and this will determine their bidding in the IPR market. Because of the specialised markets, the diffuser may have economies of scale advantages that enable him to sell the products more cheaply to the end market. This can supposed to be to the benfit of the inventor as well since more people can thus make use of it, for which the inventor may ack the abilities (Dixon and Greenbalgh, 2002). There is the issue of increased transaction costs, but this is for now assumed to solve itself as part of the price-setting process. The potential (temporary) increase of transaction costs is assumed to be offset by increased efficiencies as described above. This would decrease the overall costs, resulting in the possibility to charge lower prices.
In short, the benefits of such a system (assumed for now, and depending on exact design), would be the increased efficiencies thanks to specialisation, and reducing pre-emptive, or non-productive patenting. The latter effect could possibly in the current system also be approximated by shortening the expiration time of a patent. Without the stimulation of specialisation this may however not have the intended effect (Garnier, 2008). Similar to the renewal requirement for trademarks, ITRs could also be required to be returned to the IPR-owner who can then resell them again. In this way, the ITR-purchaser does have some incentive to put the ITR to use, which would be especially relevant for inventions that refer to the products that are the main focus on this paper. With deep pockets they could still keep the invention from the market for some time.
Role of governments
Nearing the end of this discussion-provoking paper, we will pay a little extra attention to the role of governments. In general a free flow from inventors to deployers without all kinds of rules and mechanisms would probably be beneficial for wide diffusion. But governments are in a particularly precarious position because of their ambivalent interests: protecting the competitive position of the unit they are governing, but also protecting the public goods that need to be secured.
A change in or addition to the (global) IPR-system like suggested with the ITR-option, could take a long time and given the number of alternatives as outlined above, a formal change may not be quite necessary. However, elements of the idea may be used to enhance or inspire implementation of the other options. Governments do have various channels at their disposal to push developments in the right direction. As asserted by Rijsdijk (2007), one of the most important actions on government"s part is providing a stable vision that can help companies to decide to make investments and use strategies like the one described above. Even in today"s world, governments still have an important role to play as "leaders of the transition" (ibid, 2007). The inherent complexity of finding the right balance between protection and diffusion is acknowledged by some of the leading scholars on (open) innovation (Chesbrough, Vanhaverbeke, Cloodt, 2006). They recommend to deal with intellectual property in a predictable, reliable but limited way to achieve this balance. A very interesting recent report discussed exactly this matter, in the context of a new Global Climate Deal (Tomlinson et al, 2008). They too acknowledged this required balance between economic incentives and mechanism for optimal diffusion in wake of global issues as essential. Their main suggestion involves a global 'protect and share' agreement between governments, resulting in much more rapid diffusion, while still recognising the need to compensate initial patent holders. Especially if companies do get substantial RD&D funds, governmente can make these subject to conditions. The elements of such an arrangement include many of the ones that have been discussed in this paper or discussed below, like free licensing in some markets, buy-outs, use-it clauses, risk guarantees and open access IPR pools (like the one of the EPC). Another policy-recommendation is to make sure that monopolies are not created, which means that rivalry and competition needs to be stimulated, which means, creating a conducive market space. This very much corresponds with encouraging open innovation and deployment models where the combination of best ideas and capabilities like time to market prevail instead of just the capacity to "invent and store". This could be further enhanced by limiting periods that companies can keep inventions off the market. Several options to achieve this have been suggested in this article. Some consideration for the interests of large companies will be needed, but focusing on the needs of society should dominate. This will guide the effectiveness of the companies as well.
Additional to somehow facilitating (several of the) options that were discussed above, governments can take on even more active roles regarding targeted technology development. Especially when public goods are concerned they can buy off IPRs (e.g., Dixon and Grenbalgh, 2002), thereby making it easier for companies to lower their prices. They could also buy a number of non-exclusive licenses and give these to producers in developing countries (thereby also creating employment, which arguably is a cheaper option for international development than the traditional form of development aid...). Also, many authors (e.g., Maskus, 2004) have asserted that the competitiveness of a country is largely determined by its structural capacities, not its (incidental) advantages achieved by inventions. In that sense, development aid should more be aimed at building these capacities, and governance, in addition to measures as discussed in this article. This is valid with regards to transfer to, as well as deployment in developing countries, but can also be seen broader (e.g., communities at home). Additionally, if a stronger enforcement of IPRs is desired, developing countries should get more assistance in ctually doing so, since it is widely acknolwedged that such enforcement is a costly affair, which should not go at a cost of more pressing national problems (Dixon and Greenbalgh, 2002).
Governments can also guarantee a certain demand which enables producers to make investments that can result in bigger scale-advantages (Oosterhuis and Faber, 2007). This enables producers to lower the price per product because earning back innovation costs can be divided over more products. Other measures include more generosity with subsidising, or otherwise supporting deployment of the "right" products (Yamaguchi, 2005). They can work together with Export Credit Agencies for this. Finally, they may be able to stimulate a more centralised availability of information regarding patents, together with the Patent offices.
But governments, both nationally and supra-nationally, have another role as well: they are a huge market force themselves (public procurement). They could use this position to favour companies that demonstrate a policy towards deployment that incorporates aspects (similar to those) described above. The government as conscious consumer does not require formal changes, only a political decision. This saves the trouble of going through a legislative (and enforcement) process, it simply confronts companies with the question: do you want us as your customer or not?
In the current system, the way inventions are treated and especially how they are used by companies leads to several problems. These include undesirable costs to society with regards to prices of new products, sub-optimal deployment of products and resources spent on protection, monitoring and enforcement. This paper suggests that emphasis should shift to learning, developing learning abilities and thinking about more contemporary business models. The most likely reason for the former phenomena is the fear of companies to lose their competitive advantage. However, a convincing case could be made for letting companies compete on the basis of actual organisational capacities instead of (coincidental) inventions they create. This does not ignore the potential value of having an IPR system, but rather recognises that the current system is not necessarily the alpha and omega of the contemporary creative business environment.
As has been argued above, companies and even governments have many options at their disposal to stimulate another mindset, without having to change the formal system. Open Innovation is a well known principle by now, so maybe it is time for Open Deployment. Governments can have an active role in this, especially by making public RD&D funding in areas of public use (clean technology, health care etc) subject to 'protect and share' agreements (Tomlinson et al, 2008). Arguably most of the options to achieve that depend on the vision of the parties in the chain. They can send off everyone in other directions than the one that is currently followed by reconsidering the need to patent, the need to patent "full blown" or not, and if they do patent the way they deal with licensing.
Companies, both the ones that outsource innovation and the ones that develop new inventions in-house, can reconsider how they want to best allocate their resources. They can focus on protecting ideas, fencing off competition and counting on high margins, or they can put their energy into stimulating creativity, acknowledging the value of learning opportunities and focusing on building capacities in their organisation. The latter option seems a healthy way forward and fully acknowledges that we live in a competitive world. It would be interesting to analyse how such a development would be influenced if non-profit organisations (are enabled to) become more active in this field. Some of the options described provide a first insight in how this could materialise. Discussion between the various stakeholders will be required to design new ways of working in such a way that the possible benefits can materialise as much as possible. Eventual success of course depends on the actual execution and currently unforeseen effects cannot be ruled out.
- First snippets of this article can be found in posts from 2007 on Wouter Kersten's blog: http://woutersinnovationspace.web-log.nl.
- A possible more appropriate name is issue-driven entrepreneurs: they exist to solve particular issues, and profit is a means to keep achieving that mission. Focus shifts from profit maximisation to impact maximisation.
- These countries, like China, have a demand for different segments, from high quality premium prices, via ‘good enough’ to lower quality but low price variants (Gadiesh et al, 2007).
- This argument includes the necessity of required resources to actually monitor and act upon patent infringements, which not every company may be able to bear. They have the law on their side but are they able to use it? I.e., can they defend that right and if not do alternatives exist that make a better use of resources in building a sustainable company?
- In line with several other developments, such a system could initially be limited to technologies that clearly serve the common good and need wide dissemination. For many inventions this is not necessarily the case.
- The ITR-system could be enhanced by letting the deployment plan of the bidder be part of the transaction, see the main solution directions for more ideas on this option.
- This is quite a large conceptual step that needs to be thought through: are individual patents bought and sold, or can some kind of trading take place, indicating a dynamic positioning of patents compared to each other? In case of trading, it could work similar to a stock market where performance expectations largely determine the stock price.
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